Costing Setup

We strongly recommend you decide on a coherent, overall costing strategy for your company before implementing any of the costing functionality in the system.

Be sure you understand the implications of the cost type and cost method you have chosen before you implement the manufacturing functions. After your strategy is complete, you can set up the system to handle the associated calculations and controls and provide the appropriate cost reports. You implement your strategy by indicating your decisions on the following fields, which control the way the system maintains, processes, and applies costs throughout the system:

1. Open the Inventory Parameters form and select a cost type in the Cost Type field. The cost type you select at this level will be the default value in the Cost Type field when you add new item records. On the Items form - General tab, you can overwrite the Cost Type on an item by item basis. Valid options are:

   Standard Costing:

   • All inventory reports use the standard cost of each item.
   • All transactions processed that affect inventory value are posted to the inventory distribution journal at standard cost (variances are also posted).
   • You can still use one of the four actual cost methods (average, LIFO, FIFO, or specific) for job costing, even though you are using standard costing for your journals/ledger.
   • Variance calculation will depend on the setting of the Calculate Variances Against field located on the Shop Floor Control Parameters form. For standard costing, this field should be set to Standard.

   Actual Costing:

   • All inventory transactions are posted to the inventory distribution journal based on the cost method you enter for each item on the Items form.
   • The cost used for inventory reports, job costing, and posting to the inventory ledger distribution journal is determined by the costing method specified in Items for each item.
   • Variance calculation will depend on the setting of the Calculate Variances Against field located in Shop Floor Control Parameters. For actual costing, this field should be set to Actual.
2. Select the Cost item at Warehouse field if you want to track the cost of items at the item/warehouse level instead of the item level. Leave this field blank to continue to track costs at the item level.
   CAUTION: Once you select this field and save the record, it cannot be deselected.
3. Open the General Parameters form and select the Post to Journal check box if you want the system to post to the Ledger Distribution Journals transactions for all production and material transactions. Clear this check box if you do not want the system to perform the posting.
4. Open the Purchasing Parameters form and select a value in the Update Current Cost field. This field tells the system how to use the Current Unit Cost field in Items for purchased items. Regardless of which costing method is in use, it is possible to use the Current Unit Cost field to maintain the current cost of purchased parts. The value of this field has no affect on the flow of costs through the system. It is accessed only by the purchase order receiving function in Purchasing to determine whether it is possible to update the Current Unit Cost field in Items with the purchase price of the item. The valid values for this field are:
   • Average - The system maintains the average purchase cost for purchased items in the Current Unit Cost field. When an item is received into stock by way of the purchase order receiving function, The system calculates a new average cost for the item and posts the result back to the Current Unit Cost field.
   • Last - The system maintains the last price paid for purchased items in the Current Unit Cost field. When an item is received into stock through the Purchasing module, the purchase order unit cost is posted to the Current Unit Cost field.
   • None - prevents Purchasing from updating the Current Unit Cost field when items are received.
5. Specify information on the Shop Floor Control Parameters form:
   • Jobs Tab - Calculate Variances Against - Select Actual or Standard.

   • Transactions Tab - Overhead Basis determines whether the overhead costs applied to jobs are based on material cost, labor hours, both, or neither. Enter the Overhead Applied Basis. If you leave this field blank, the system will not calculate overhead. Valid entries are:

     • Labor - the Fix Ovhd Rate and Var Ovhd Rate fields on the Departments form are used in the calculation of labor overhead.
     • Material - the Fixed Matl Ovhd Rate and Variable Matl Ovhd Rate tabs on the Product Codes form are used in the calculation of material overhead. The overhead updates the WIP when you issue the material to the job.
     • Machine - the Fix Mach Ovhd Rate and Var Mach Ovhd Rate fields on the Work Centers form-Costing tab are used in the calculation of machine overhead.
   • Transactions Tab - Costs Based on Complete determines how costs are calculated for items moved to stock from non-completed jobs. Valid entries are:
     • Operations - actual costs are used for those operations that are complete; planned costs are used for those that are incomplete.
     • Jobs - planned costs are used for all operations.
6. Specify information on the Items form:
   • Cost Type - displays the cost type you entered as a default on the General Parameters form. If you want to overwrite the default for the current item only, select Actual costing or Standard costing. When you change the Cost Type, the system converts the internal information to match the new type for the item. This may generate ledger transactions.
   • Cost Method - maintains the cost flow method used for tracking and posting Cost Ledger transactions for the item. When you change the cost method, the system will convert the internal information to match the new method for the item. This may generate ledger transactions.

NOTE: When determining the values it should use for posting to the journals/ledger, the system first looks at the Cost Type in Items. If the Cost Type is Standard, the system will post the standard unit costs for all items to the journals/ledger. But if the Cost Type is Actual, the system will look at the Cost Method to determine the values it should post to the journals/ledger.

The cost flow methods available for valuing inventory if your Cost Type is set to Actual are:

The cost flow methods available for valuing inventory if your Cost Type is set to Standard are:

Related Topics

Costing Overview

Average Costing Setup

LIFO and FIFO Costing Setup

Specific Costing Setup

Standard Costing Setup